TITLE PAGE                                                                                                                         i

APPROVAL PAGE                                                                                                               ii

CERTIFICATION                                                                                                                 iii

DEDICATION                                                                                                                       iv

ACKNOWLEDGEMENTS                                                                                                   v

TABLE OF CONTENT                                                                                                         vi

LIST OF TABLES                                                                                                                 ix

LIST OF FIGURES                                                                                                               x

ABSTRACT                                                                                                                           xi

CHAPTER ONE: INTRODUCTION                                                                                1

Background of the Study                                                                                           1

Statement of the Problem                                                                                           11

Purpose of the Study                                                                                                  12

Significance of the Study                                                                                           12

Research Questions                                                                                                     13

Hypotheses                                                                                                                 14

Scope of the Study                                                                                                     14

CHAPTER TWO: REVIEW OF RELATED LITERATURE                                      15

Conceptual Framework                                                                                                       15

  • Small and medium enterprises 15
  • Internal control strategies 16
  • Control environment 17
  • Risk management control 18
  • Internal control activities 19
  • Internal control monitoring and evaluation activities 20
  • Information and Communication System 21

Theoretical Framework                                                                                                        25

  • Principal-Agent theory 25
  • System theory 26
  • Contingency theory 27

Related Empirical Studies                                                                                                    28

Summary of Literature Reviewed                                                                                       38

CHAPTER THREE: METHODOLOGY                                                                         41

Design of the Study                                                                                                     41

Area of the Study                                                                                                        41

Population for the Study                                                                                                          42

Sample and Sampling Techniques                                                                               42

Instrument for Data Collection                                                                                                42

Validation of the Instrument                                                                                        43

Reliability of the Instrument                                                                                        43

Method of Data Collection                                                                                          44

Method of Data Analysis                                                                                             44


Presentation of Data                                                                                                   45

Findings of the Study                                                                                                 53

Discussion of the Findings                                                                                         55


Re-statement of the Problem                                                                                      60

Summary of Procedures Used                                                                                                61

Major Findings of the Study                                                                                      63

Implications of the Findings                                                                                       63

Conclusion                                                                                                                  64

Recommendations                                                                                                      65

Suggestions for Further Study                                                                                    65

REFERENCES                                                                                                                    67

APPENDICES                                                                                                                      72

A: Population Distribution of Registered Small and Medium Enterprises in

Major Towns in Enugu State                                                                                 72

B: Request for Validation of Research Instrument                                                    73

C: Letter to Respondents                                                                                            74

D: Questionnaire                                                                                                         75

E: Reliability of the Instrument                                                                                  78

F: Output of Data Analysis                                                                                        84

G: Validated Copy of the Instrument

H: List of Sample of Small and Medium Enterprises in Enugu




Table 1: Mean Ratings and Standard Deviation of Respondents on Internal Control

Environments Strategies Adopted by SME                                                               45

Table 2: Mean Ratings and Standard Deviation of Respondents on Internal Control

Risk Management Strategies Adopted by SMEs                                                       46

Table 3: Mean Ratings and Standard Deviation of Respondents on Information and

Communication System Strategies Adopted by SMEs                                              47

Table 4: Mean and Standard Deviation of Internal Control Activities Strategies

Adopted by SMEs                                                                                                      48

Table 5: Mean of Respondents on Internal Control Monitoring Activities Strategies

Adopted by SMEs                                                                                                      49

Table 6: ANOVA Analysis of the Mean Responses of Respondents on Internal Control

Environment Strategies Adopted by SMEs based on Educational Qualification      50

Table 7: ANOVA Analysis of the Mean Responses of Respondents on Internal Control

Risk Management Strategies Adopted by SMEs based on Experience                     50

Table 8: ANOVA Analysis of the Mean Responses of Respondents on Information

and Communication System Strategies Adopted by SMEs Based on Number

of Employees                                                                                                              51

Table 9: ANOVA Analysis of the Mean Responses of Respondents on Internal Control

Activities Strategies Adopted by SMEs Based on Experience                                  52

Table 10: ANOVA Analysis of the Mean Responses of Respondents on Internal

Control Monitoring Strategies Adopted by SMEs Based on Experience                  53



Figure 2.1: Schematic representation o the conceptual framework                                        2


The study was carried out to assess the internal control strategies adopted by small and medium enterprises in Enugu State. The population for the study was 1280 registered SMEs in the state. The sample size of the study is 128 managers, supervisors and accounting officers of SMEs. In line with the objectives of the study, a structured questionnaire was employed for the data collection and it was face validated by three experts. Data collected from the respondents were analysed using mean and standard deviation to answer the five research questions. Items with a mean of 2.50 and above was regarded as agreed while items with a mean rating from 2.49 and below was regarded as disagreed. Cronbach Alpha reliability coefficient formula was used to determine the internal consistency of the instrument. The results revealed reliability coefficients of 0.87, 0.93, 0.72, 0.78 and 0.87 for Clusters A to E respectively, and an overall reliability coefficient of 0.84. The Analysis of Variance (ANOVA) method was used to test the null hypotheses at 0.05 probability level of significance. Based on data analysed, it was found that knowledge of internal control system was not popular as it was poorly adopted by SME in Enugu State. Specifically, the result showed that internal control environment strategies, internal control risk management strategies and internal control information and communication strategies were not adopted by operating SMEs sampled in this study. Furthermore, it was also found that best practices in internal control activities strategies and internal control monitoring activities strategies were also not adopted by SME operators in Enugu State. Following the findings of the study, it was recommended that knowledge of internal control system should be taught in financial accounting courses of business education and more awareness on the need for risk management process should be created. In addition, effort should be made by promoters of business education study curriculum to address challenges associated with effective practice of internal control system of SMEs. Lastly, entrepreneurs should be encouraged by the government, education authorities and concern institutions to attend workshops, seminars and conferences on the internal control system.



Background of the Study    

The increasing importance and growth of Small and Medium Enterprises (SMEs) has been a welcome development in modern economies across the globe. The role of SMEs in job creation and its general contribution to economic welfare and growth in developing and developed countries cannot be overemphasized. Yet not many of them survive the test of time as most of such enterprises liquidate as soon as they were established. The reason goes beyond lack of fund to keep the business afloat. It includes but not limited to poorly conducted feasibility study report, poor management capacity, poor infrastructural facilities, lack of experience and requisite skills on the part of entrepreneurs and others (Aminu & Shariff, 2015). There are great potential benefits from robust and vibrant SMEs in every modern economy in the form of job creation, human capital development and economic growth. However, the process for assuring achievement of any business organization’s objectives according to Tang & Tang (2012) is through operational effectiveness and efficiency, reliable financial reporting, compliance with laws, regulations and policies. These have remained the critical issues that keep confronting SMEs especially in developing countries like Nigeria. It has been evidently displayed by the relatively poor performance of SMEs sub-sector in Enugu and other states of the federation despite huge business opportunities in the localities (Aruwa, 2004). As a result, people continued to believe federal and state civil service, oil sector, trading and politics remains the most fertile sources of livelihood in Nigeria.

According to the Organization for Economic Cooperation and Development (OECD) (2007), the distinctiveness of SMEs not only reflects the economic patterns of the country but also the social and cultural dimensions. These varying patterns are traceable within different definitions and criteria for classification of SMEs adopted by different countries. While some refer to the number of employees as their distinctive criteria for defining SMEs, others use invested capital, and some others use a combination of the number of employees, invested capital, sales and industry type (Eniola & Ektebang, 2014). Anga (2014) conceptualised SMEs as firms with relatively small share of their market place; one mostly managed by owners or part owners in a personalised way, and not through the medium of a formalised management structure; and one which maintains independent, in the sense of not forming part of a large enterprise. Similarly, Ebiringa (2011) defined SMEs to include firms with fixed assets (excluding land) less than US$ 250,000 in value. It also included firms with less than 50 employees and at least half the output is sold respectively. The National Council of Industries defined SMEs as businesses whose total costs excluding land is not more than two hundred million naira (N200, 000,000.00) only (Onugu, 2005). Although there is no clear distinction between what is a small or medium business, SMEs are defined in this study as business enterprises with a labour size of 11-300 workers and whose total cost including working capital is not more than 200 million naira, but excluding cost of land.